Opinion
No. 00-2706
March 6, 2001
ORDER AND REASONS
Before the Court is the Succession of William C. Garrett's appeal from an interlocutory order rendered by the Bankruptcy Court. For the following reasons, the Bankruptcy Court's order is AFFIRMED.
A. BACKGROUND
On April 18, 2000, the Succession of William C. Garrett ("Garrett"), an open succession pending in St. Tammany Parish, filed a petition for executory process seeking to foreclose on several parcels of real estate owned by the Debtor, Josephine D. Dimitri ("Ms. Dimitri"), and her late husband, Frank P. Dimitri. The parcels in question were subject to three mortgages given to secure the Dimitris' indebtedness to Garrett of approximately $1,200,000.00. Each of the mortgages contains an assignment of rents, which lie at the center of the current appeal.
As a result of Garrett's foreclosure petition, a state district judge signed an order directing the clerk to issue writs of seizure and sale against the property of the Debtor and ordered seizure of all rents and revenues derived from the properties. The tenants were notified of the rent seizures by both the sheriffs and Garrett.
On June 27, 2000, Ms. Dimitri filed a petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Eastern District of Louisiana. Garrett filed a motion to prohibit use of rents by Ms. Dimitri as cash collateral, while Ms. Dimitri filed a motion for permission to use those same rents. On August 24, 2000, following a hearing, the Bankruptcy Court denied Garrett's motion and granted Ms. Dimitri's motion. Garrett now appeals the Bankruptcy Court's order.
B. LAW AND ANALYSIS 1. Statement of Issues Presented and Standard of Review.
Garrett argues that the Bankruptcy Court erred in granting Ms. Dimitri permission to use the rents because the assignments of rent were absolute and, therefore, not property of the estate available for use by the debtor as cash collateral.
This Court reviews the Bankruptcy Court's findings of fact under the clearly erroneous standard, see Matter of Consolidated Bancshares, Inc., 785 F.2d 1249, 1252 (5th Cir. 1986), and its conclusions of law de novo.Id. (citing Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1308 (5th Cir. 1985).
2. Discussion.
The assignment of rents in Louisiana is governed by Revised Statute 9:4401(A), which provides in part that
Any obligation may be secured by an assignment by a lessor or sublessor of leases or rents, or both leases and rents, pertaining to immovable property. Such assignment may be expressed as a conditional or collateral assignment, and may be effected in an act of mortgage, by a separate written instrument of assignment, or by a separate written instrument of pledge, and may be referred to, denominated, or described as a pledge or an assignment, or both. The instrument shall state the amount of the obligation secured thereby or the maximum amount of the obligation that may be outstanding at any time from time to time that such assignment secures. If such conditional or collateral assignment is made, it shall become absolute upon the assignor's default in respect to the obligation thereby secured or in accordance with the terms of the instrument creating such assignment, and shall become operative as to the debtor upon written notice to the debtor from or on behalf of the assignee or the assignor that such assignment has so become absolute.
Garrett argues that the rent assignments at issue became absolute upon Ms. Dimitri's default. Therefore, Garret concludes, the Bankruptcy Court had no authority to allow Ms. Dimitri to use the rents as cash collateral.
Ms. Dimitri contends, however, that she was not in default and that the only reason she filed for Chapter 11 protection was because Garrett instituted foreclosure proceedings. She argues that the Bankruptcy Court's order reflects agreement with her position. Moreover, because the mortgaged properties are worth far more than the debts they secure ($2,987,918.00 compared to $1,200,000.00), Ms. Dimitri argues that the Bankruptcy Court properly exercised its discretion under 11 U.S.C. § 363. See In re Creel, 214 B.R. 838, 841 (Bankr. E.D. La. 1997); In re Triplett, 87 B.R. 25, 26-27 (Bankr. W.D. Tex. 1988).
Garrett expressly declines to address this point, maintaining that, because the assignment was absolute, the Bankruptcy Court could not exercise any discretion under the Code.
The Court finds that Garrett has presented no evidence or compelling reason to believe that the Bankruptcy Court erred in granting Ms. Dimitri permission to use the rents at issue. Based on the appellate record, the Court cannot conclude that Ms. Dimitri was in fact in default or, even if she were, that Garrett took the steps necessary to perfect its interests in the rents. See, e.g., In the Matter of C.G. Chartier Constr., Inc., 126 B.R. 956, 958-59 (E.D. La. 1991) (affirming bankruptcy court's finding that the creditor's interest in rents was not perfected upon default, but rather was perfected post petition when it filed its motion for adequate protection and sequestration of rents); In the Matter of Century Plaza Ctr., 95 B.R. 401, 403 (E.D. La. 1989) (according to the language of the Act of Mortgage securing indebtedness and LA. R.S. 9:4401 (a), written notice was required before an assignment of rents becomes operative against the debtor). Moreover, there seems to be adequate protection for purposes of 11 U.S.C. § 363. Accordingly, the Court AFFIRMS the Bankruptcy Court's order.
C. CONCLUSION
For the reasons set forth above,
IT IS ORDERED that the Bankruptcy Court's order is AFFIRMED.